• Operating Profit: Over $1 billion SEK in Q3.
• Return on Capital Employed: 16% for the last year, average 18% over the last 10 years.
• Net Debt: 6% of equity, approximately $3.5 billion SEK.
• Cash Flow from Forest Activities: Increased by 60% over the last three years.
• Electricity Prices: Lowest in Sweden in the last 20 years during Q3.
• Log Costs: Record high, 50% higher than three years ago.
• Board and Paper Division: Strong performance with stable prices and favorable mix.
• Seasonal Cost Reduction: $80 million SEK lower in Q3 compared to previous quarter.
• Expected Q4 Impact: Profit impact of $250 million SEK due to maintenance and rebuild.

• Warning! GuruFocus has detected 7 Warning Signs with HLMMF.

Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Holmen AB (HLMMF) achieved an operating profit of over $1 billion in the third quarter, driven by strong performance in board and paper segments.
• The company has maintained a strong financial position with a return on capital employed of 16% over the past year.
• Holmen AB (HLMMF) has successfully increased cash flow from forest activities by 60% over the last three years.
• The board and paper division showed a stellar performance, with a strong mix and good volumes contributing equally to EBIT.
• Holmen AB (HLMMF) has been able to distribute significant returns to shareholders through dividends and share buybacks, amounting to $6 billion.

Negative Points

• The company faces challenges due to high log costs, especially in the southern parts of Sweden, impacting the wood products segment.
• Electricity prices in Sweden were at a 20-year low, affecting revenue from renewable energy operations.
• The wood products market is experiencing weak demand and high log costs, leading to operational challenges.
• Holmen AB (HLMMF) anticipates a headwind in Q4 due to maintenance shutdowns and lower demand in the board and paper division.
• The company is facing a challenging market environment with oversupply and high costs, particularly in the sawmill operations in southern Sweden.

Q & A Highlights

Q: Looking forward to Q4, how do you see the demand for consumer paperboard, and what impact will the maintenance shutdowns have on earnings? A: The outlook for Q4 is challenging due to lower demand for consumer paperboard in Europe and the impact of maintenance shutdowns, which are expected to affect earnings by about $250 million. The lag between log prices and end product prices for wood products is roughly 6 to 8 months.

Q: What are your expectations for the saw timber market in Q4 and the winter, and how will pricing be affected? A: The market is oversupplied globally, with high log costs everywhere. While we don't see signs of sawmills taking downtime in southern Sweden, the market remains challenging. Prices are expected to remain stable despite seasonal weakness, but the sawmills in southern Sweden are heading for a loss at current price levels.

Q: Can you provide insights on the fair value gain on forestry this quarter and expectations for the full year? A: The fair value gain was higher this quarter due to less harvesting and more silviculture actions. In Q4, we expect the number to go down as we revert to normal harvesting levels, with fewer silviculture activities.

Q: How do you view capital allocation, particularly regarding share buybacks and capex plans? A: Share buybacks are a tool we use alongside extra dividends, supported by strong cash flow. Capex for this year is forecasted to be slightly above $2 billion, with a high level expected next year, though reaching $3 billion will need further assessment.

Q: What is your perspective on the transaction market for forest land in Sweden, and how might it affect revaluation at year-end? A: We use a three-year transaction sample to value forest land, capturing market trends. Recent transactions suggest a more optimistic view, with wood prices up 50% and transaction prices offering good yields. However, the exact impact on year-end revaluation remains uncertain.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.